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Funding liquidity and equity liquidity in the subprime crisis period: Evidence from the ETF market

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  • Chiu, Junmao
  • Chung, Huimin
  • Ho, Keng-Yu
  • Wang, George H.K.
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    Abstract

    Using index and financial exchange-traded funds (ETFs), this study explores the relation between funding liquidity and equity liquidity during the subprime crisis period. Our empirical results show that a higher degree of funding illiquidity leads to an increase in bid–ask spread and a reduction in both market depth and net buying imbalance. Such findings indicate that an increase in funding liquidity can improve equity liquidity, with a stronger effect for the financial ETFs than for the index ETFs. Our study provides a better overall understanding of the effect of the liquidity–supplier funding constraint during the subprime crisis period.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 36 (2012)
    Issue (Month): 9 ()
    Pages: 2660-2671

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:9:p:2660-2671

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Funding liquidity; Equity liquidity; Collateral market; Interbank market; Subprime crisis;

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